The Effect of Disruptive Technology and Analytic on Financial Services Innovation and Modern Risk Management

Due to the advancement in technology as well as changes in customer habits, the banking sector is facing a period of disruptive transformation. Also, increasing revenue which includes maintaining and growing profits have become difficult for banks as a result of an extended period of unfavorable interest rates and stricter regulations worldwide.

The financial information within institutions, including analytics functions, are being redefined by secular market forces. With the new capabilities unfolding, accessing, exploring and interacting with data as well as content production and analytics development are changing in the direction expected by data scientists, business users, and modelers. Likewise, data residency that is related to how sensitive information is handled and issues of data privacy affect behaviors of the customers and technology preferences.

Also, not automating, using traditional analytics and handling processes manually are lowering efficiency in ways that affect the business severely. The reason behind many delays for some customers is the underwriting processes that do take a more extended period. Moreover, there is no access to some essential banking services by individuals that have no credit history while small and medium enterprises without credit information face difficulty in securing a loan.

Besides, banks also have the issue of old and outdated infrastructure and a legacy system they are dealing with. Due to their old age, the infrastructure operates in silos while their ability to respond promptly to customer and business requirements as well as new regulatory is affected by restricted connectivity and coordination between them.

Despite this, there is still positivity in innovative change. In this new environment, the combination of technology and analytics can result in efficiencies and competitive advantages, helping institutions to be successful as a business.

The New Change Agents: Technology and Analytics
The challenges banks are facing can be solved by technology with the possibility that information asymmetry in the financial space will also be reduced. In a similar manner to Daniel Goldin’s approach to NASA’s aerospace programs, sharing information have become cheaper, faster and better. Through the optimization of resources, improving data platforms and analytics, enhancing efficiency, revamping technology, rebuilding capital, searching for new data-driven business models and changing the risk culture, the industry is adapting to changes in the secular markets.

With the application of the exponential advancement in technology, application-based open architectures, and cloud-based computing approaches, banks have been given the huge advantage to enhance their traditional analytics and regulatory processes. There have been considerable improvements over the years through data processing and real-time analysis capabilities which have allowed banks to monetize and use various data sources in a way that saves time and reduces cost.

This means that the period spent on business regulatory metrics have been drastically reduced. The advent of new trends like artificial intelligence applications, block chain-based data sharing frameworks, and predictive analysis has banked the advantage of enjoying innovation beyond the scope of their technological environment.

The new trends priorities are the maximization and monetization of client relationship which cut across the entire field of banking services. The leading aspect in line in banking analytics is the modern data-mining, which would help in managing risk, analyzing regulatory, detecting fraud, authenticating digital and customer experience. Data and analytics are now proven ways banks are using to be innovative, establishing new business and developing new products.

The new business models coming up are not costly, more efficient than the traditional banking models and focused more on customers. Likewise, artificial intelligence provides a lot of applications in the financial industry, such as automating repetitive tasks which helps to improve human capabilities.

Banks can now expand their potential customer base and reduce operating cost through AI-based automation. This will equally enable employees and individuals to shift their focus to other strategic activities and services. However, switching over to AI comes with specific challenges, such as cultural shift at banks. Also, implementing an AI application will result in substantial re-engineering processes which would potentially affect how financial institutions handle their businesses and sources of profits.

The Pros and Cons of Digital Banking Transformation
Digital banking is set to become the principal channel for banking due to its growth rate which is spreading rapidly across the different segments of customer and could replace the traditional banking hall. Banks in the past have been reliance on the conventional relationship management as an avenue for reducing the cost of funds and high lending margin. However, the new digital banking, as well as the electronic distribution channel, may not be able to accommodate the traditional relationship management.

To maintain their customers base and remain competitive are herculean tasks for banks since the digital banking will not only reduce operating costs but also remove margins while making it easy for banks to penetrate the markets.
It has now become pertinent for banks to find ways of providing quality individuals’ services to digital customers, which would enhance digital relationships. Achieving that will require banks to develop a new generation of analytics to evaluate data about customer behavior and make inferences about the needs of customers and risk profiles.

Adopting digital banking models and using new technologies are altering applications, systems and banks interaction with regulators, other financial institutions, customers, and vendors. Through posts on social media and digital channels by consumers and small-to-medium enterprises, financial institutions now have the advantage of having more information about their customers.

Moreover, banks are now adopting application programming interfaces (APIs) to enable them to integrate various systems under the concept of open banking without difficulty, thus allowing them to avoid application-driven silos; interacting with third-party vendors; delivery of new services to clients and generating new channels of revenue.

Banks, Regulators, and Customers Can Look Forward to a Brighter Future
Technology is an essential ingredient perceived by regulators that can make the transparency of the financial system and facilitation of the supervisory and evaluation of data processes of both banking and nonbanking institutions better. Business leaders and senior management who are identifying with the unique value of using new technologies and data-driven analytics are also changing their attitude towards business and regulatory compliances purposes.

The application of technology and innovation will enable banks to convey analytics and data resources to drive adoption of business enterprise and the business. This will also render assistance to gain new insights into risk management, establishing a new business, developments of new products and generating business insights that are proven.